Are Global Climate Taxes the Future of COP29 Talks?

“Money doesn’t grow on trees, but it sure can clean the air,” mused a delegate at COP29 in Baku. For nearly 30 years, UN climate summits have brought together world leaders to evaluate progress and negotiate pathways to combat climate change. With 198 Parties—197 countries and the European Union—participating in these efforts, the Convention enjoys near-universal membership. This year at COP29, discussions took a sharp turn toward actionable strategies, with a particular focus on global taxes targeting shipping, aviation, and fossil fuels. Once seen as untouchable, these sectors are now at the forefront of negotiations aimed at plugging the significant finance gap needed to achieve the 2015 Paris Agreement goals.  

Are We Finally Seeing the Greenbacks for Going Green? 

COP29 is tackling a new global climate finance target that aims to raise a staggering $1 trillion annually. The previous goal—$100 billion per year from wealthy nations to aid developing countries—has been deemed insufficient to address escalating climate crises. 

Why the urgency? A hefty $6.7 trillion per year is needed globally by 2030 to meet climate goals, with $2.3 trillion earmarked for emerging economies outside China. This isn’t just about charity; it’s about investments that could yield significant long-term returns for rich nations. Economists at the summit argue that contributing to climate finance is an act of economic self-interest, not mere goodwill. 

Taxing the Big Polluters 

The shipping industry, responsible for 3% of global emissions, has proposed levies ranging from $18.75 to $150 per ton of CO₂, potentially generating over $100 billion annually. Meanwhile, the aviation sector, contributing 2% of emissions, faces new calls for levies on jet fuel, luxury tickets, and frequent flyers—measures that could raise up to $164 billion annually. However, fossil fuels remain central to the debate, with proposals for a $5-per-ton “Climate Damages Tax” that could yield $216 billion yearly. 

Shipping has led the charge in pricing emissions, with its levy decision setting a precedent for aviation. However, aviation leaders argue that fossil fuel companies, whose profits dwarf airline earnings, should contribute more. Marie Owens Thomsen, chief economist for the International Air Transport Association, quipped during a panel, “Why squeeze peanuts out of airlines when oil giants are sitting on mountains of cash?” Her argument resonates as fossil fuel subsidies continue to pour billions into oil companies’ revenue annually, a practice many say should instead fund the global energy transition.  

Proposals include taxing windfall profits, potentially generating $173 billion from the largest fossil fuel firms in just two years. While fossil fuel subsidies perpetuate emissions, redirecting these funds could significantly boost global climate finance. As negotiations move toward COP30 in Brazil, taxation mechanisms and revenue allocations remain key to achieving the ambitious Paris Agreement goals. 

Breaking Down These Climate Taxes

Tax levies on industries like shipping, aviation, and fossil fuels will require professionals to prepare for a world where climate taxes are not just policy but practice. Here are key areas to watch: 

• Carbon Accounting Compliance: With shipping and aviation likely to face new tax regimes, businesses will need robust carbon accounting systems. This means accountants must gear up to manage and audit emission-related taxes and credits. 
• Tax Policy Shifts: Governments considering climate taxes must reconcile domestic revenue needs with international obligations. Finance professionals will be instrumental in structuring policies that balance fairness, efficiency, and feasibility. 
• Private Sector Adaptation: As industries adapt to new levies, financial advisors will play a critical role in helping companies allocate resources for decarbonization and navigate evolving tax structures. 
• Investment Strategies: Tax levies could create new opportunities in green finance. Portfolio managers might see increased demand for investments tied to renewable energy, carbon credits, and other climate-friendly initiatives. 

One delegate joked, “If only the pirates of the Caribbean knew about shipping levies, they’d have traded treasure chests for tax havens.” While lighthearted, this underscores a serious point: avoiding tax dodging and ensuring levies contribute meaningfully to climate goals will require international cooperation. 

Will Rich Nations Pay Now or Later

The United States’ role remains critical, yet contentious. While Biden’s Inflation Reduction Act poured billions into green energy, a Trump-led presidency could dismantle key provisions, including subsidies for electric vehicles. This uncertainty has global implications. For example, if the U.S. fails to contribute significantly to international climate finance, other nations might hesitate to step in, dampening global efforts.

Developed countries face mounting pressure to commit more funds. Recent studies presented at COP29 highlight a stark reality: failing to provide adequate climate finance today will lead to skyrocketing costs tomorrow, from rebuilding after disasters to addressing supply chain disruptions caused by extreme weather. Spain’s Prime Minister Pedro Sánchez put it bluntly: “Climate change kills.” His warning wasn’t hypothetical. Over 220 Spaniards lost their lives in recent floods, underscoring how climate impacts are no longer confined to the developing world. 

Is the World Ready for a Climate Cash Shift?

As COP29 draws to a close, the groundwork is being laid for COP30, set to take place in Brazil next November. The agenda will include finalizing the mechanisms for shipping levies, expanding aviation taxation, and addressing broader issues such as fossil fuel subsidies and financial transaction taxes. 

The transition from discussions to actionable strategies will be critical. COP30 will also review the feasibility of taxing cryptocurrency transactions, plastic production, and even billionaire wealth, with a focus on ensuring fairness and raising substantial revenue. With governments now firmly in the driver’s seat, the days of dismissing carbon levies as political pipe dreams are over. Interesting isn't it. For more insights follow us and subscribe to our weekly newsletter for expert analysis and updates!